The HMO Death Watch 2 - How Shall We Regard Medicare Advantage?

Posted on December 12, 2008
Filed Under HMO Death Watch |

DrRich has never really understood the government’s rationale for funding Medicare Advantage.

Being a Milton Friedman capitalist, DrRich is all in favor of having plenty of robust, profit-seeking entities knocking about within the American economy, even within the healthcare sector of the economy. In principle, he is even in favor of giving for-profit health insurance companies a chance to prove that they can deliver quality healthcare with greater efficiency and better outcomes than certain non-profit entities, such as, say, the government. If the insurance companies can give us good healthcare at lower cost, then it only makes sense to let them keep, as profit, some of the savings they provide us. And indeed, this is the very bargain which for-profit insurance companies offered us, and which we accepted.

So in the ideal Platonic universe, of which our sad world is merely a dull shadow, DrRich sees friendly, compassionate and efficient HMOs providing excellent and affordable healthcare to a population of trim, fit, sophisticated citizens with tiny carbon footprints. (Mr. Obama is President there, too, though in that place he has actually quit smoking.)

But here, where we live, alas, the health insurance industry has proven itself to be an abject failure. Having utterly exhausted the profit-making phases of its lifecycle (i.e., Phase I, where companies were able to build Market Cap by acquiring not-for-profit community assets for a tiny fraction of their actual value; then Phase II, where companies were able to build Market Cap by merging with each other), the health insurance industry has entered its final, post-maturity phase, where it finds itself in the unenviable position of having to try to generate a profit - and worse, to demonstrate growth - by actually providing healthcare to sick people. It turns out, of course, that in our messy, non-Platonic world, this is not possible.

So it is easy to see why insurance companies love Medicare Advantage. Under Medicare Advantage, for-profit insurance companies are granted access to millions of Medicare patients, whose health insurance premiums are guaranteed by American taxpayers (47 million of whom have no health insurance themselves, but that’s the subject of a different post). Furthermore, the government actually pays the insurance companies a bonus, over traditional Medicare expenditures, for taking on this “burden.”

All the insurance companies have to do to make a profit from Medicare Advantage is to employ their tried-and-true covert rationing mechanisms, so as to waste as little money as possible delivering healthcare to its subscribers. These mechanisms include denying services to patients (according to an AMA survey  50% of patients enrolled in Medicare Advantage programs were denied services that were permitted by traditional Medicare), reducing payments to physicians to even less than they receive from traditional Medicare, then employing deceptive contracting devices to entrap physicians into accepting those payments, and, of course, cherrypicking patients. And indeed, insurance companies do make a tidy profit from Medicare Advantage - which has proven to be the industry’s only real source of growth over the past several years.

But why would the government, or more accurately, the Republican administration, choose to support such a scheme? The obvious answer, of course, is to provide support to for-profit health insurance in accordance with the supposed inherent Republican capitalistic bias. Let the private sector have a chance to demonstrate its innate capacity for efficiency. Under this theory, the bonus paid to insurance companies, over and above traditional Medicare expenditures, could be seen as a temporary enticement for these companies to get into the game. The bonuses could be ratcheted down as time went by, as private-sector efficiencies were implemented, and eventually companies could still realize decent profits while reducing overall costs to the government.

At least, that’s how DrRich used to see it. But over the past few months, observing how the Republican administration has behaved with regard to certain other economic sectors, it has become apparent (to DrRich, at least), that Medicare Advantage was actually the original government bailout program.

Mr. Obama declared as recently as yesterday that Medicare Advantage is high on his hit list.  And earlier this week, the Government Accountability Office released a report showing that profits being made by insurance companies from the Medicare Advantage program continue to exceed projections by more than 2:1.   This GAO report, which had been ordered up by Representative Pete Stark (Democrat, California), is being used to paint the insurance companies as fundamentally evil entities that are soaking up as profit money that ought to be going to providing more care for patients on Medicare. (The especial demonization of the insurance companies is necessary, apparently, because the old people - bless them - seem to really like Medicare Advantage, and the powerful AARP has done quite well for itself in supporting particular Medicare Advantage programs, so may be loath to see it go away. )

It would be a waste of time for DrRich to point out that the reason profits have been higher than projected with Medicare Advantage is that insurance companies are spending less money than Medicare projected they would spend. Whether they are spending less money by being more efficient (which the insurance companies claim) or by dastardly covert rationing techniques (which is the explanation favored by DrRich), the bottom line is still the same - they are spending far less money than Medicare thought they would spend, given the profiles of the patients they enrolled.

Indeed (wasting even more time), DrRich notices that, according to the numbers in the GAO report, it is apparent that enough profit cushion exists so that payments to insurance companies could now be ratcheted down to below the cost of traditional Medicare, while still allowing companies to realize a profit. If the real goal of either the Republican administration or the incoming Democrat administration were to slow healthcare spending, then Medicare Advantage could now be declared a rousing success.

But that’s not the goal of either Republicans (for whom Medicare Advantage is merely a bailout) or the Democrats (who want to bring the health insurance companies to their knees), so the actual savings potential now seemingly provided by Medicare Advantage is not exciting, but merely embarrassing.

As it all stacks up, it looks like Medicare Advantage will be deep-sixed just as soon as the new administration is convinced it has sufficiently demonized the program.

And at that point, the one and only, final remaining hope of the health insurance industry will be Obama-style healthcare reform. Any distant threat that the insurance industry might  resurrect Harry and Louise in a campaign against that reform will have been made even less likely than GM announcing its opposition to a government “bridge loan.”

Comments

3 Responses to “The HMO Death Watch 2 - How Shall We Regard Medicare Advantage?”

  1. NG on December 12th, 2008 2:31 pm

    Dr. Rich,

    Assuming in these times of potential healthcare system reform that the biggest obstacle to real reform is the belief by many Americans that what we have now is better than anything else that can be devised. Your buzzword to refute this seems to be your “Covert rationing” concept. My question is how would you recommend and structure a successful public campaign to really show and drive home to most Americans what you see as Covert Rationing and what it really does to our system of Healthcare?

  2. DrRich on December 12th, 2008 4:12 pm

    NG,

    If I were any good at devising successful public campaigns, I would be selling a lot more copies of my book (which tells about covert rationing, what it’s doing to us as individuals and as a culture, and how to fix it).

    Rich

  3. peter jones on December 16th, 2008 5:43 pm

    Obviously, a pivotal (tipping?) point for the US health care system - poised for potential and much needed change. I maintain a link to GUT-HC at:

    http://www.p-jones.demon.co.uk/linksTwo.htm

    I will add your blog to the economics listing at:

    http://www.p-jones.demon.co.uk/linksIV.htm

    My blog and Hodges’ model may be a helpful resource, especially at a time in the US and elsewhere when self-care and reflection upon our health as individuals and groups is vital.

    http://www.p-jones.demon.co.uk/

    Blog - “Welcome the the QUAD”

    http://hodges-model.blogspot.com/

    Best to you for 2009!

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